Convertibles trade in line with shares as trade talks eyed; PDC flat to better on swap

By Rebecca Melvin

New York, Oct. 10 – International trade negotiations continued to be the big story in financial markets on Thursday, with convertibles trending mostly in line with their underlying shares as stocks advanced a second day on expectations that the talks between U.S. and Chinese negotiators are paving the way to a trade agreement.

U.S. president Donald Trump said that he would meet with Chinese vice premier Liu He on Friday after Liu met with U.S. trade representative Robert Lighthizer and treasury secretary Steven Mnuchin early Thursday.

PDC Energy Inc.’s 1.125% convertibles due 2021 traded down to 92.625 with the shares off fractionally to $24.77. A week ago, the PDC convertibles traded at 94.125, with shares of the Denver-based oil and gas exploration and production company a dollar higher than in the current session at $25.72.

But the bond was technically in line or even up on a dollar-neutral basis, according to a New York-based market source, citing the fact that the bond has a very low theoretical delta.

It is “not a liquid bond and it’s also only a 5% theoretical delta, so technically dollar neutral it is up on the day on the theoretical,” the source said.

Nabors Industries Ltd.’s 0.75% convertibles due 2024 changed hands at 56.5 as shares of the oil and gas drilling contractor, which have slumped for the last month, were last at $1.62.

Square Inc. moved up, however. The Square 0.5% convertibles due 2023 traded up 0.5 point to 111.628 with the underlying shares of the payments processing company slipping 20 cents to $62.00.

Meanwhile, Ctrip.com International Ltd.’s 1% convertibles due 2020 traded at 97.875 on Thursday, which was up 0.125 point to 0.25 point on the day, while shares of the Chinese online travel agency traded up 1.6% to $29.50. The company announced that it has inked another agreement with Japan’s JR Kyushu Railway Co., which investors hope will support Ctrip.com’s efforts to boost inbound tourism in Japan.

But Weibo Corp.’s 1.25% convertibles due 2022 pared their Wednesday gains, trading at 99.75 early Thursday against a 2% gain in the underlying shares of the Beijing-based social network company to $47.79.

The most active issues that traded in the convertibles market on Thursday were Fortive Corp.’s 0.875% convertibles due 2022, which traded at 98.6 last after nearly $17 million of the bonds changed hands by mid-afternoon. Shares of the Everett, Wash.-based diversified industrial conglomerate added 0.9% to $65.43.

Also busy were Illumina Inc.’s sister convertibles, the 0% convertibles due 2023 and 0.5% convertibles due 2021. The 2023 notes traded at 109.98, which was up 0.5 point, and the 2021 notes traded slightly higher to 130.47, according to Trace data.

Illumina shares added $1.22, or 0.4%, to $298.18.

The primary market remained quiet for another day, with no new issues announced or priced this past week. The primary has quieted after a record monthly tally in September.

A small deal priced in the Canadian market with Rule 144A status. Melcor Real Estate Investment Trust priced C$40 million of five-year convertible unsecured subordinated debentures to yield 5.1% with an initial conversion premium of 15% over the closing unit price of the company on the Toronto Stock Exchange on Thursday.

Concurrently with the issue of debentures, Melcor REIT LP will issue between $10 million to $15 million of class B LP units. The unit price will have an issue price equal to a 1.5% premium to the five-day volume weighted average price of the trust units of the REIT trading on the Toronto Stock Exchange.

The proceeds of the debentures will go toward the REIT’s acquisition of a commercial property, which is being purchased for about C$54.8 million.

The balance of the purchase price for the acquisition will be funded by a combination of proceeds of the concurrent private placement and a draw on the REIT’s revolving credit facility.

Melcor REIT is an Edmonton, Alta.-based real estate investment trust.

Mentioned in this article:

Ctrip.com International Ltd. Nadsaq: CTRP

Illumina Inc. Nasdaq: ILMN

Melcor Real Estate Investment Trust Toronto: MR.UN

Nabors Industries Ltd. NYSE: NBR

PDC Energy Inc. Nasdaq: PDCE

Square Inc. NYSE: SQ

Weibo Corp. NYSE: WB

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